Editor’s Note: The stock market has been volatile in recent weeks, yet many of us don’t fully understand what stock markets are or why they matter. To help us understand the markets, we turned to Ryan Hutchinson (Executive Vice President at Southeastern Seminary) and Ross Roggensack (an investment advisor).
Life has been like a rollercoaster ride over the past month. Not one of those rollercoasters like Thunder Mountain at Disney World that most people can endure. It has been more like Millennium Force at Cedar Point in Ohio, 310 feet tall and reaching speeds of over 90 mph. Your vocal cords are vibrating like a seismograph 9.0 Richter earthquake, and the interpretation of your scream is “get me off of this ride as soon as possible!” Included on this rollercoaster are your investments, which are being jolted around like crash test dummies into a wall at full speed.
So, what are you to make of all of this volatility, and how do you understand what is going on with your investments? Below is a brief FAQ to explain some of what you are hearing and reading in the headlines.
If someone claims to have a sure-fire way to make lots of money quick, it probably isn’t.Click to tweet
Is the stock market the same thing as the economy?
Yes and no. The US stock market is made up of roughly 4,000 companies, and the economy is made up of around 5.6 million firms. The stock market is a good gauge of the large company health of the economy. When someone refers to the market, they are usually referring to the Dow Jones Industrial Average or the S&P 500. The economy is used more broadly to cover all economic activity that is occurring. The market deals with the impact on stock valuations of companies, while the economy refers to the production of goods and services and their impact on the financial health of the nation.
What are the stock indexes like the Dow Jones, NASDAQ, S&P 500? Why are there different ones?
The indexes are just different slices of those 4,000 public companies. The Dow Jones is an index that was invented by the Wall Street Journal many years ago that is made up of 30 companies that vary by industry. The S&P 500 is made up of 500 companies that represent a cross section of all industries. The NASDAQ is generally the largest 100 technology-focused firms. Think of indexes as ways to focus on whatever you want – large companies, small companies, etc. You can think of indexes like a place to find a company’s current share stock price, like how you might use a site like Zillow or Trulia to look up the value of a house, even though values are only estimates in those cases.
How should Christians think about the stock market? Isn’t just gambling?
If you view the stock market as a way to get rich quick, then yes, it is the same as gambling and should be avoided. But, if you treat stocks as long-term investments, as a Christian you should feel free to invest your money in stocks. One caveat here – investment is ownership. So, Christians should partner their investment with like-minded companies, and avoid companies that engage in things like abortion, gaming, tobacco, alcohol and pornography, to name a few. Prudent investing is putting your money at a moderate amount of risk that over the long-term will produce modest gains. Investing is a good form of stewardship of God’s resources.
What advice would you give for beginners?
My first advice would be to begin. Investing might seem scary, but it is not. Something called an index fund allows you to gain an important component of investing – diversification. Diversification allows you to invest across many different companies. Investing is a simple process:
- Put some money into something like a good index fund or companies you trust.
- Keep putting money into those investments.
- Don’t get nervous when your investments temporarily go down.
- Keep putting money into those investments.
What are some ways to tell when something is a good (or bad) investment?
Experience is usually the best teacher. As you learn, your ability to discern good from bad will become easier. But, as you can see from recent market gyrations, this is even hard for the professional investor class. You can also talk to people that have experience with investing to get their recommendations. Always remember that if someone claims to have a sure-fire way to make lots of money quick, it probably isn’t. Like all areas of the Christian life, remember Proverbs 15:22, “Plans fail when there is no counsel, but with many advisers they succeed.” The Christian perspective of investing is different than that of a non-believer because what has our name on it is not our own. Psalm 24:1 says, “The earth and everything in it, the world and its inhabitants, belong to the LORD.” Also, Haggai 2:8 reminds us, “‘The silver and gold belong to me’—this is the declaration of the LORD of Armies.” What we have is not our own, it is God’s. As stewards, we use the resources God has entrusted to us wisely and for His glory. Investing is a wise action for Christians to undertake, and now is a great time to start investing.